2002-2005 Smokeless Tobacco Report · In 2001, the companies reported spending $16.34 million on...

Federal Trade Commission Smokeless Tobacco Report

for the Years 2002-2005

Issued in 2007

I. INTRODUCTION

This report is the latest in a series on smokeless tobacco sales, advertising, and promotion

that the Federal Trade Commission (“the Commission”) has prepared since 1987. The statistical

tables contained within this report provide information on domestic smokeless tobacco sales and

advertising and promotional activities.1 Commission staff prepared these tables using

information collected, pursuant to compulsory process, from the parent companies of the five

major manufacturers of smokeless tobacco products in the United States: North Atlantic Trading

Company, Inc. (the parent of National Tobacco Company); Swedish Match North America, Inc.;

Swisher International Group, Inc. (the parent of Swisher International, Inc.); UST, Inc. (the

parent of United States Smokeless Tobacco Company); and Conwood LLC (general partner of

Conwood Sales Co., L.P.).

II. TOTAL SMOKELESS TOBACCO SALES AND ADVERTISING AND PROMOTIONAL EXPENDITURES

The figures in Table 1 indicate that the total number of pounds of smokeless tobacco sold

by manufacturers to wholesalers and retailers was 112.15 million pounds in 2002, 112.92 million

pounds in 2003, 116.77 million pounds in 2004, and 116.20 million pounds in 2005. In 2001,

the last year for which such totals were previously published by the Commission, total sales were

112.19 million pounds.

1 Some 1985 data are included. The 1985 data are less detailed than those from 1986 forward because they were collected retrospectively and were meant to serve as baseline data.

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Sales revenues received by the manufacturers from wholesalers and retailers continued to

increase – as they have every year since 1985 – through 2004, before declining slightly in 2005:

$2.36 billion in 2002, $2.49 billion in 2003, $2.62 billion in 2004, and $2.61 billion in 2005. In

2001, the manufacturers reported revenues of $2.13 billion.

The total amount spent on advertising and promotion by the five major manufacturers

was $234.65 million in 2002, $242.51 million in 2003, $231.08 million in 2004, and $250.79

million in 2005, a new record. The previous record was $236.68 million in 2001.

For the first time since it began collecting data on smokeless tobacco sales and marketing

expenditures, the Commission required the companies to report the number of units of smokeless

tobacco they sold and gave away in packages of various size (e.g., less than 1 ounce, from 2

ounces to less than 5 ounces, 15 ounces or more). Those data are reported in Table 2, which

shows that for each of the years covered by the report, more packages weighing 1 ounce to less

than 2 ounces were sold and given away than any other size package.

III. SMOKELESS TOBACCO ADVERTISING AND PROMOTIONAL EXPENDITURES BY CATEGORY

This report is the first one issued by the Commission since it substantially revised its

definitions of the various smokeless tobacco advertising and promotional expenditure

categories.2 These revisions clarified (and, in some cases, expanded) the definitions of certain

categories, split several categories into smaller subcategories, and specified where money should

The previous report, which was issued in 2003, contained data for 2000 and 2001.

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be reported when expenditures fell within two or more categories.3 The Commission also added

new categories to pick up expenditures that may have previously been unreported or reported in

the catch-all “other” category. Major changes are discussed below with respect to the specific

expenditure categories, which are reported in Tables 3A through 3G.4

Spending on advertising in newspapers, which had been $1.83 million in 2001, declined

to $722,000 in 2002, and then to $262,000 in 2003, before rising to $285,000 in 2004, and then

to $453,000 in 2005.5

Magazine advertising, which had reached an all time high of $21.96 million in 2001,

fluctuated over the next four years, with $23.14 million spent in 2002, $22.84 million in 2003,

$25.00 million in 2004, and $21.0 million in 2005.

Spending on outdoor advertising rose from $10,522 in 2001 to $117,000 in 2002. This

spending then declined to $101,000 in 2003, before rising to $184,000 in 2004, and $207,000 in

2005.6

As they had each year since the Commission began collecting these data, the companies

reported no expenditures for transit advertising. For the first time since 1986, however, they did

3 In some cases, the companies were asked to report these “dual” expenditures in a different category than they previously were reported.

4 Detailed definitions of the 2002-2005 expenditure categories are reported in Appendix A.

5 The Commission permitted the companies to report their 2002-2005 expenditures in thousands of dollars, rather than in actual dollars, as had previously been required.

6 The Commission’s orders for the years 2002-2005 defined “outdoor” advertising to mean billboards; signs and placards in arenas, stadiums, and shopping malls (whether they are open air or enclosed); and any other advertisements placed outdoors, regardless of their size, including those on smokeless tobacco retailer property. In prior years, “outdoor” advertising was not precisely defined. In particular, it was not clear that signs in arenas, shopping, stadiums, shopping malls, or on retailer property were to be reported in this category.

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report expenditures for audio-visual or video advertising: $7,000 in 2002, $139,000 in 2003,

$7,000 in 2004, and $119,000 in 2005.

In 2001, the companies reported spending $16.34 million on direct mail advertising. The

amount spent on direct mail fell in each of the next three years (to $7.07 million in 2002, $5.98

million in 2003, and $5.67 million in 2004) before rising to $8.24 million in 2005.

Point-of-sale advertising declined from $17.41 million in 2001 to $16.89 million in 2002,

before rising to $20.87 million in 2003, and $23.12 million in 2004. Point-of-sale advertising

then declined to $20.75 million in 2005.

Beginning in the year 2002, the “promotional allowance” category was broken into four

new categories: price discounts, promotional allowances paid to retailers, promotional

allowances paid to wholesalers, and other promotional allowances. The largest promotional

allowance category was price discounts paid to smokeless tobacco retailers or wholesalers in

order to reduce the price of smokeless tobacco products to consumers (e.g., off-invoice discounts,

buy downs, and voluntary price reductions), which accounted for expenditures of $99.0 million

in 2002, $106.53 million in 2003, $86.98 million in 2004, and $99.70 million in 2005. Price

discounts represented between 37.6 percent and 43.9 percent of total industry spending during

each of the four years covered by this report.

In addition, the industry spent $3.25 million in 2002, $5.10 million in 2003, $4.29 million

in 2004, and $3.41 million in 2005 on promotional allowances paid to smokeless tobacco

retailers in order to facilitate the sale or placement of smokeless tobacco products (e.g., payments

for stocking, shelving, displaying and merchandising brands, volume rebates, and incentive

payments). The companies also reported paying $16.76 million in 2002, $12.63 million in 2003,

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$11.22 million in 2004, and $12.55 million in 2005 on promotional allowances paid to smokeless

tobacco wholesalers (e.g., payments for volume rebates, incentive payments, value added

services, and promotional execution). Finally, between $9,000 and $41,000 was spent on

promotional allowances paid to anyone else (other than retailers, wholesalers, and full-time

company employees) involved in the smokeless tobacco distribution and sales process, in order

to facilitate the sale or placement of smokeless tobacco products, during the years 2002-2005.

When these four promotional allowance categories are combined, they account for 50.8% of total

2002 spending, 51.2% of 2003 spending, 44.4% of 2004 spending, and 46.0% of 2005 spending.

In 2001, the last year before the Commission revised its definitions of promotional allowances,

the companies reported expenditures of $60.87 million, representing 25.7% of total spending.

The companies reported spending $25.75 million in 2002, $22.48 million in 2003, $25.16

million in 2004, and $28.18 million in 2005 giving smokeless tobacco samples to the public

(“sampling”). The new definition of “sampling” makes clear that when coupons are distributed

for free smokeless tobacco products and no purchase is required, such activities are to be

reported as “sampling.” In addition, the new definition clarifies that sampling includes the

distribution of smokeless tobacco for consumer evaluation when consumers are able to use the

product on their own (outside of a company facility). In 2001, the last year before the

Commission clarified what expenses should be counted as sampling, the companies reported

expenditures of $17.89 million.

In 2001, the companies spent $324,694 to provide consumers with specialty promotional

items (such as shirts and hats bearing the name or logo of a smokeless tobacco product)

distributed through the mail, at promotional events, or by any means other than at the point of

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sale with the purchase of smokeless tobacco.7 Beginning with the year 2002, the specialty item

distribution category was broken into two new categories: branded and non-branded. In 2002,

$419,000 was spent on branded specialty item distribution; the companies also reported spending

$45,000 in 2003, $22,000 in 2004, and $119,000 in 2005.8 The companies reported no spending

on non-branded specialty items in 2002 through 2004, and $36,000 in 2005.

Expenditures for the new adult-only public entertainment category were reported to be $0

in both 2002 and 2003, $7,000 in 2004, and $73,000 in 2005. This category includes public

entertainment events (e.g., sponsorship of bar nights or concerts) that take place in adult-only

facilities and display the name or logo of a company’s smokeless tobacco products or otherwise

refer to smokeless tobacco. Spending on general-audience public entertainment – i.e., events

that do not take place in an adult-only facility and that display the name or logo of a company’s

smokeless tobacco products or otherwise refer to smokeless tobacco – was higher: $1.45 million

in 2002, $1.64 million in 2003, $1.35 million in 2004, and $215,000 in 2005.9 In 2001, the

companies reported spending $18.06 million on public entertainment.

Spending on endorsements declined from $255,000 in 2001 to $130,000 in 2002, then

rose to $355,000 in 2003, and remained unchanged at that level through 2005.

7 This expenditure category does not include specialty items provided at retail with smokeless tobacco products (e.g., “buy three, get a free key chain”), which are deemed retail value added.

8 Specialty item distribution includes the practice of selling or giving to consumers tobacco items, such as T-shirts, caps, sunglasses, key chains, calendars, lighters, and sporting goods, bearing the name or logo of a smokeless tobacco brand.

9 The companies also spent $4.91 million in 2002, $4.07 million in 2003, $4.85 million in 2004, and $5.05 million in 2005 on public entertainment events displaying their corporate name, but not displaying the name or logo of any brand of any smokeless tobacco product or otherwise referring to smokeless tobacco. These figures are not included in the total advertising and promotional expenditures reported herein.

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The companies reported spending $8.86 million in 2002, $8.17 million in 2003, $9.02

million in 2004, and $4.19 million in 2005, on the sponsorship of sports teams or individual

athletes. This was the first time the Commission had required the companies to report these

sponsorship expenditures separately.

The Commission’s new definition of “coupons” makes clear that when coupons are

distributed for free smokeless tobacco and no purchase is required to redeem them, such

activities should be reported only as “sampling.” In 2001, prior to this clarification, the

companies reported spending $31.53 million on coupons.10 Using the new definition, the

companies reported coupon expenditures of $12.16 million in 2002, $11.52 million in 2003,

$10.69 million in 2004, and $28.62 million in 2005.

Retail value added expenditures are the costs associated with offers such as “buy one, get

one free” and “buy three, get a free T-shirt,” where the bonus item is distributed at retail when

the smokeless tobacco product is purchased. Beginning in 2002, the retail value added category

was broken into two new categories – one where the bonus item is additional smokeless tobacco

and one where the bonus items are non-smokeless tobacco items. The companies spent $13.69

million in 2002, $16.00 million in 2003, $14.95 million in 2004, and $9.31 million in 2005 on

retail value added involving free smokeless tobacco products. They also spent $466,000,

$556,000, $2.65 million, and $4.43 million in those years, respectively, on retail value added

Prior to 1998, one company did not separately track expenditures for coupons. Instead, the company included these expenditures in the point-of-sale or promotional allowances categories in its submissions to the Commission. Accordingly, the figures reported for coupons prior to 1998 are understated and those reported for point-of- sale and/or promotional allowances are overstated; changes in spending on those categories between 1997 and 1998 should be viewed with this information in mind.

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involving free non-smokeless tobacco items. In 2001, the companies reported spending $43.24

million on retail value added.11

In 2001, the companies reported spending $262,296 on Internet advertising. For the years

2002 through 2005, the Commission required the companies to report their expenditures for

company Internet websites separately from their expenditures for other Internet advertising. The

companies reported spending $18,000, $15,000, $877,000, and $272,000 for advertising on their

websites, in the years 2002 through 2005, respectively, plus $54,000 in 2002, $25,000 in 2003,

$16,000 in 2004 and $413,000 in 2005 on Internet advertising other than on their own websites.

Another new expenditure category was telephone advertising, which includes expenses

associated with telemarketing calls or the operation of incoming telephone lines for consumers to

participate in promotions or hear pre-recorded product messages (but excludes costs associated

with customer service representatives for responding to consumer complaints or questions). The

companies reported spending $169,000 in 2002, $374,000 in 2003, $231,000 in 2004, and

$120,000 in 2005 on telephone advertising.

Since 1992, the Commission has required the manufacturers to report the total amount of

money they spent advertising and promoting sports and sporting events.12 This question is

11 Prior to 2000, one company did not separately track expenditures for retail value added. Instead, the company included these expenditures in the point-of-sale or promotional allowances categories in its submissions to the Commission. Accordingly, the figures reported for retail value added prior to 2000 are understated and those reported for point-of-sale and/or promotional allowances are overstated; changes in spending on those categories between 1999 and 2000 should be viewed with this information in mind.

12 This includes expenditures for: (1) the sponsoring, advertising, or promotion of sports or sporting events; support of an individual, group, or sports team; and purchase of or support for equipment, uniforms, sports facilities, and/or training facilities; (2) advertising in the name of the smokeless tobacco company or any of its brands in a sports facility, on a scoreboard, or in conjunction with the reporting of sports results; and (3) all expenditures for functional

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separate from, and duplicative of, the reporting of the individual various advertising and

promotion categories. For example, money spent on a magazine advertisement promoting a

smokeless tobacco-branded sports tournament open to those of all ages is reported under the

category “general-audience public entertainment” and is also reported as an expenditure on

“sports and sporting events.” Similarly, expenditures on sponsorship of sports teams and

individual athletes are reported under the category “sponsorship” and are also reported as “sports

and sporting events.” These expenditures are only counted once, however, in computing the

industry’s total advertising and promotional expenditures. Expenditures for sports and sporting

events rose from $17.87 million in 2001 to $21.06 million in 2002. Those expenditures then

fluctuated over the next three years: $16.94 million in 2003, $20.65 million in 2004, and $15.75

million in 2005.

The companies reported that they spent $8.75 million, $10.14 million, $11.61 million,

and $13.19 million in 2002, 2003, 2004, and 2005, respectively, on advertisements directed to

youth or their parents that were intended to reduce youth use of smokeless tobacco products.13

These figures do not include contributions to third parties that engage in such programs.

Smokeless tobacco manufacturers reported that they paid no money or other form of

compensation in connection with the production or filming of any motion pictures or television

shows in 2002, 2003, 2004, or 2005, and that they paid no money or other form of compensation

to anyone engaged in product placement in motion pictures or television shows. The companies

also reported that neither they nor anyone working for them solicited the appearance of any

promotional items (clothing, hats, etc.) connected with a sporting event.

These expenditures are not included in the advertising and promotional expenditures reported in Table 1.

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smokeless tobacco product in any motion picture or television show, or granted permission for

the appearance of any smokeless tobacco product in any motion picture or television show.

IV. SMOKELESS TOBACCO SALES AND ADVERTISING AND PROMOTIONAL EXPENDITURES BY TOBACCO TYPE

There are several types of smokeless tobacco products, including dry snuff, moist snuff,

plug/twist, and loose leaf chewing tobacco. Tables 4A through 4D present details on sales and

advertising and promotional expenditures by type of smokeless tobacco.

From 2002 through 2005, the number of pounds of moist snuff sold increased, while the

number of pounds sold of loose leaf and chewing tobacco, of plug and twist, and of scotch snuff

and dry snuff, all fell. The 75.67 million pounds of moist snuff sold in 2005 exceeded the

combined sales of all of the other kinds of smokeless tobacco.

Similarly, moist snuff consistently generated more revenue than any other type of

smokeless tobacco. In 2005, dollar sales for moist stuff were $2.23 billion, representing 85.2%

of total smokeless tobacco sales.

Tables 4A through D also indicate that moist snuff continued to receive the greatest

advertising and promotional support. In 2005, for example, the companies spent $210.43 million

advertising and promoting moist snuff, compared to $16.75 million for loose leaf/chewing

tobacco, $72,000 for plug/twist, and $103,000 for scotch/dry snuff.

The companies also reported spending $6.92 million in 2002, $13.72 million in 2003,

$18.22 million in 2004, and $23.44 million in 2005 marketing brands that encompass more than

one type of smokeless tobacco product. The amounts spent on advertising and promotion of

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these products are included in the totals set forth in Table 3G, but not in Tables 4A through 4D.14

Tables 5A through 5D present details about the number of units sold in packages of

various sizes for each type of smokeless tobacco product for 2002-2005. For plug/twist,

scotch/dry snuff, and moist snuff, more packages weighing 1 ounce to less than 2 ounces were

sold each year than any other size. For loose leaf/chewing tobacco, more packages weighing 2

ounces to less than 5 ounces were sold each year than any other size.

For the first time, the Commission allowed the companies to report marketing expenditures at the brand level, rather than at the variety level. For those smokeless tobacco brand families that encompass more than one type of product (e.g., moist snuff and plug/twist), marketing expenditures are thus available only at the brand level, and not for each individual type of product within the brand family.

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TABLE 1

TOTAL SMOKELESS TOBACCO SALES

AND ADVERTISING AND PROMOTIONAL EXPENDITURES

FOR 1985 - 2005

Advertising and Promotional

Year Sales in Pounds Sales in Dollars Expenditures

1985 121,449,115 $730,618,970 $80,068,229

1986 118,778,334 $797,777,885 $76,676,706

1987 116,540,281 $852,717,347 $67,777,044

1988 114,433,782 $901,654,382 $68,223,671

1989 116,440,365 $981,637,304 $81,200,611

1990 117,415,326 $1,091,170,201 $90,101,327

1991 120,110,686 $1,237,961,670 $104,004,040

1992 118,372,693 $1,361,360,729 $115,346,708

1993 115,888,785 $1,475,460,518 $119,230,826

1994 115,495,201 $1,612,098,989 $125,972,408

1995 116,387,464 $1,735,840,489 $127,323,282

1996 116,404,222 $1,790,406,160 $123,877,458

1997 113,975,148 $1,817,508,055 $150,426,310

1998 110,036,380 $1,886,328,217 $145,486,899

1999 109,401,055 $1,940,736,017 $170,213,761

2000 111,741,335 $1,988,875,535 $224,582,757

2001 112,193,550 $2,127,520,387 $236,676,917

2002 112,148,366 $2,362,166,931 $234,645,000

2003 112,924,505 $2,489,501,857 $242,514,000

2004 116,768,672 $2,617,388,686 $231,084,000

2005 116,197,005 $2,611,292,547 $250,792,000

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TABLE 2

NUMBER OF UNITS SOLD AND GIVEN AWAY – BY PACKAGE SIZE

FOR 2002 - 2005

Less than 1 oz. to less 2 oz. to less 5 oz. to less 10 oz. to less 15 oz. or

1 oz. than 2 oz. than 5 oz. than 10 oz. than 15 oz. more

2002 sold 25,394,260 887,095,347 216,169,305 6,628,408 15,735 36,200

given away 915,205 22,123,561 3,792,001 0 0 0

2003 sold 37,883,014 918,733,530 203,567,697 7,848,051 15,936 353,436

given away 2,663,753 14,474,790 2,352,034 0 0 0

2004 sold 42,705,741 959,223,302 191,040,358 8,645,329 15,456 2,118,017

given away 7,422,914 15,859,744 2,247,914 0 0 24

2005 sold 47,107,372 980,089,404 175,013,057 7,902,121 14,064 2,275,388

given away 5,952,331 17,059,852 1,983,417 48 0 0

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TABLE 3A

SMOKELESS TOBACCO ADVERTISING

AND PROMOTIONAL EXPENDITURES

BY CATEGORY

FOR 1985

Television & Radio Advertising $26,584,731

Total Print $8,719,379

All Other $44,764,119

Total $80,068,229

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TABLE 3B



BY CATEGORY

FOR 1986 AND 1987

1986 1987

Newspapers $626,979 $1,452,710

Magazines $6,226,654 $9,237,988

Outdoor $2,722,557 $8,321,315

Television & Radio* $16,067,211 $0

Audio, Visual $2,579,268 $0

Transit $0 $0

Point-of-Sale $4,234,207 $5,789,436

Promotional Allowances $8,231,580 $7,554,592

Sampling $13,699,156 $13,877,923

Distribution Bearing Names $2,353,816 $4,312,094

Direct Mail $20,844 $48,979

Public Entertainment $13,823,266 $14,844,425

Endorsements $435,710 $245,105

All Other $5,655,458 $2,092,477

TOTAL $76,676,706 $67,777,044

* Expenditures allocated for television and radio advertising on electronic media subject to Federal Communications Commission (“FCC”) regulations cover approximately six months of 1986 because the statutory broadcast ban became effective on August 28, 1986.

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TABLE 3C



BY CATEGORY

FOR 1988 - 1991

1988 1989 1990 1991

Newspapers $940,256 $449,918 $880,629 $1,109,503

Magazines $5,778,582 $6,410,401 $10,214,280 $9,652,958

Outdoor $4,801,955 $2,913,074 $2,650,471 $1,644,287

Audio, Visual $0 $0 $0 $0

Transit $0 $0 $0 $0

Point-of-Sale $7,436,270 $9,693,996 $10,320,657 $10,749,602

Promotional Allowances $6,360,041 $8,327,225 $9,936,022 $14,771,597

Sampling $12,345,180 $15,019,174 $13,461,932 $13,959,101

Distribution Bearing $4,055,180 $4,611,457 $2,854,289 $3,866,263 Names

Direct Mail $623,731 $935,370 $78,000 $893,000

Public Entertainment $17,501,791 $19,638,397 $20,272,355 $21,116,095

Endorsements $260,539 $292,290 $264,484 $344,000

Coupons & Retail Value $4,655,429 $9,689,049 $16,438,440 $23,306,499 Added*

All Other $3,463,919 $3,220,210 $2,729,768 $2,591,135

TOTAL $68,223,671 $81,200,611 $90,101,327 $104,004,040

* One company reported no expenditures for this category because its accounting records were not maintained to allow calculation of these expenditures. Instead, these expenditures were reported to the Commission in the Point-of-Sale or Promotional Allowances categories.

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TABLE 3D

SMOKELESS TOBACCO ADVERTISING AND PROMOTIONAL EXPENDITURES

BY CATEGORY

FOR 1992 - 1995

1992 1993 1994 1995

Newspapers

Magazines

Outdoor

$269,032

$9,258,297

$694,388

$274,738

$8,040,702

$855,643

$128,849

$10,261,201

$1,112,524

$142,562

$11,533,093

$1,474,121


Transit $0 $0 $0 $0

Point-of-Sale $12,133,489 $13,465,302 $13,555,569 $15,170,713


Sampling

Distribution Bearing Names

$15,975,134

$2,609,348

$15,794,391

$4,246,353

$14,279,127

$10,368,596

$15,748,393

$9,915,589

Direct Mail $1,289,000 $1,099,000 $103,000 $253,000


Endorsements $155,000 $215,000 $160,000 $160,000

Coupons & Retail Value Added*

$31,524,486 $32,297,431 $36,687,092 $33,701,379

All Other $8,529,058 $6,956,120 $3,674,240 $4,170,687

TOTAL $115,346,708 $119,230,826 $125,972,408 $127,323,282

Sports & Sporting Events $20,970,580 $22,742,986 $24,521,715 $25,863,187


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TABLE 3E


BY CATEGORY FOR 1996 - 1999

1996 1997 1998 1999

Newspapers $236,765 $1,642,347 $2,807,281 $3,306,548

Magazines $13,362,100 $11,874,395 $18,389,758 $18,436,630

Outdoor $3,544,994 $4,991,256 $2,228,381 $7,258


Transit $0 $0 $0 $0

Point-of-Sale $13,568,572 $14,712,560 $25,202,972 $26,092,942


Sampling $12,640,816 $11,155,411 $17,439,990 $17,884,888

Distribution Bearing Names $11,728,976 $17,999,555 $3,768,161 $3,161,884

Direct Mail $314,599 $808,247 $6,948,300 $5,620,844


Endorsements $162,500 $165,000 $165,000 $130,000

Coupons $3,446,225* $3,447,124* $10,965,387 $24,221,899

Retail Value Added $22,390,838* $34,938,115* $11,204,800* $11,135,604*

Internet $0 $0 $0 $0

All Other $4,397,683 $5,059,097 $5,980,656 $7,322,203

TOTAL $123,877,458 $150,426,310 $145,486,899 $170,213,761



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TABLE 3F


BY CATEGORY FOR 2000 - 2001

2000 2001

Newspapers $2,413,104 $1,825,748

Magazines $13,890,399 $21,963,961

Outdoor $6,987 $10,522

Audio, Visual $0 $0

Transit $0 $0

Point-of-Sale $15,179,555 $17,412,893

Promotional Allowances $45,393,210 $60,866,870

Sampling $15,761,075 $17,888,963

Distribution Bearing Names $347,124 $324,694

Direct Mail $17,015,856 $16,340,203

Public Entertainment $11,223,945 $18,063,522

Endorsements $230,000 $255,000

Coupons $32,746,769 $31,526,860

Retail Value Added $64,883,152 $43,235,466

Internet $155,405 $262,296

All Other $5,336,176 $6,699,919

TOTAL $224,582,757 $236,676,917

Sports & Sporting Events $11,026,204 $17,866,620

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TABLE 3G

SMOKELESS TOBACCO ADVERTISING AND PROMOTIONAL

EXPENDITURES BY CATEGOR Y FOR 2002 - 2005

2002 2003 2004 2005

Newspapers $722,000 $262,000 $285,000 $453,000

Magazines $23,142,000 $22,838,000 $25,002,000 $20,996,000

Outdoor $117,000 $101,000 $184,000 $207,000

Audio, Visual $7,000 $139,000 $7,000 $119,000

Transit $0 $0 $0 $0

Direct Mail $7,073,000 $5,982,000 $5,670,000 $8,237,000

Point-of-Sale $16,894,000 $20,874,000 $23,120,000 $20,748,000

Price Discounts $99,000,000 $106,531,000 $86,977,000 $99,699,000

Promotional Allowances – Retailers $3,245,000 $5,103,000 $4,285,000 $3,406,000

Promotional Allowances – Wholesalers $16,755,000 $12,632,000 $11,222,000 $12,550,000

Promotional Allowances – Other $41,000 $29,000 $9,000 $29,000

Sampling $25,754,000 $22,483,000 $25,156,000 $28,180,000

Specialty Item Distribution – Branded $419,000 $45,000 $22,000 $119,000

Specialty Item Distribution – Non-Branded $0 $0 $0 $36,000

Public Entertainment – Adult Only $0 $0 $7,000 $73,000

Public Entertainment – General Audience $1,453,000 $1,640,000 $1,349,000 $215,000

Endorsements & Testimonials $130,000 $355,000 $355,000 $355,000

Sponsorships $8,864,000 $8,170,000 $9,018,000 $4,192,000

Coupons $12,156,000 $11,524,000 $10,686,000 $28,622,000

Retail Value Added – Bonus Smokeless $13,686,000 $16,004,000 $14,950,000 $9,310,000 Tobacco Product

Retail Value Added – Non-Smokeless $466,000 $556,000 $2,650,000 $4,430,000 Tobacco Bonus

Company Websites $18,000 $15,000 $877,000 $272,000

Internet – Other $54,000 $25,000 $16,000 $413,000

Telephone $169,000 $374,000 $231,000 $120,000

All Other $4,480,000 $6,832,000 $9,006,000 $8,011,000

TOTAL $234,645,000 $242,514,000 $231,084,000 $250,792,000


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TABLE 4A

SMOKELESS TOBACCO SALES AND ADVERTISING AND PROMOTIONALEXPENDITURES BY TOBACCO TYPE FOR 1986 - 2005

LOOSE LEAF/CHEWING TOBACCO


ExpendituresYear Pounds Sold Dollar Sales

1986 65,697,634 $255,668,419 $32,249,750

1987 64,634,524 $267,766,776 $28,403,536

1988 60,648,126 $264,298,268 $26,198,078

1989 61,869,625 $281,701,402 $34,057,050

1990 60,896,991 $295,462,446 $35,194,561

1991 62,177,203 $321,458,416 $38,190,095

1992 58,850,933 $320,085,975 $42,820,544

1993 55,912,562 $319,672,867 $46,032,905

1994 54,242,322 $316,888,405 $44,807,716

1995 54,605,149 $323,156,639 $43,842,237

1996 54,204,655 $325,533,391 $36,387,774

1997 51,831,834 $330,903,053 $45,573,616

1998 46,887,918 $317,087,609 $26,780,236

1999 44,531,612 $278,670,311 $21,219,600

2000 44,077,019 $275,356,571 $15,592,978

2001 42,396,301 $278,982,298 $16,659,755

2002 40,703,148 $288,895,090 $17,211,000

2003 39,105,547 $294,705,352 $17,476,000

2004 39,183,779 $310,329,793 $18,218,000

2005 36,410,287 $307,026,071 $16,746,000

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TABLE 4B

SMOKELESS TOBACCO SALES AND ADVERTISING AND PROMOTIONAL EXPENDITURES BY TOBACCO TYPE FOR 1986 - 2005

PLUG/TWIST CHEWING TOBACCO


ExpendituresPounds Sold Dollar Sales

1986 8,835,200 $44,870,900 $896,821

1987 8,351,803 $44,267,561 $559,597

1988 7,282,206 $40,429,972 $868,954

1989 6,308,415 $35,132,105 $1,787,775

1990 6,557,216 $41,316,133 $1,655,886

1991 5,913,172 $42,379,173 $1,326,216

1992 5,389,336 $42,625,799 $1,722,361

1993 4,778,107 $40,702,849 $1,367,877

1994 4,410,333 $39,102,541 $936,993

1995 4,156,158 $37,996,428 $1,032,856

1996 3,096,708 $29,469,575 $653,511

1997 2,800,859 $27,434,794 $682,887

1998 3,180,093 $33,610,369 $1,216,474

1999 2,824,198 $30,733,775 $1,583,271

2000 2,718,653 $26,905,139 $1,164,235

2001 2,543,800 $26,775,821 $1,284,627

2002 2,191,910 $28,178,852 $1,159,000

2003 2,023,068 $27,044,811 $179,000

2004 1,876,461 $27,059,654 $121,000

2005 1,712,921 $25,970,711 $72,000

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TABLE 4C

SMOKELESS TOBACCO SALES AND ADVERTISING AND PROMOTIONAL EXPENDITURES BY TOBACCO TYPE FOR 1986 - 2005

SCOTCH/DRY SNUFF



1986 8,110,168 $58,951,001 $181,977

1987 7,255,296 $56,709,742 $263,482

1988 7,069,754 $57,221,662 $501,543

1989 7,244,911 $62,155,826 $654,591

1990 6,185,410 $56,601,390 $472,404

1991 5,833,210 $56,881,288 $517,145

1992 5,623,404 $57,657,911 $354,774

1993 4,996,957 $54,302,829 $313,659

1994 4,814,130 $55,574,320 $272,038

1995 4,490,094 $53,885,040 $486,280

1996 4,218,705 $53,858,106 $437,339

1997 4,063,630 $54,725,929 $522,260

1998 3,781,891 $53,292,750 $155,484

1999 3,572,339 $53,229,345 $61,516

2000 3,463,705 $54,205,273 $54,878

2001 3,364,601 $56,339,020 $68,552

2002 3,077,100 $56,344,777 $79,000

2003 2,853,516 $56,087,685 $69,000

2004 2,656,336 $54,672,024 $125,000

2005 2,402,904 $52,986,545 $103,000

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TABLE 4D

SMOKELESS TOBACCO SALES AND ADVERTISING AND PROMOTIONALEXPENDITURES BY TOBACCO TYPE FOR 1986 - 2005

MOIST SNUFF



1986 36,135,332 $438,287,565 $43,348,158

1987 36,298,658 $483,973,268 $38,550,429

1988 39,433,696 $539,704,480 $40,655,096

1989 41,017,414 $602,647,971 $44,701,195

1990 43,775,709 $697,790,232 $52,778,476

1991 46,187,101 $817,242,793 $63,970,584

1992 48,509,020 $940,991,044 $70,449,029

1993 50,201,159 $1,060,781,973 $71,516,385

1994 52,028,416 $1,200,533,723 $79,955,661

1995 53,136,063 $1,320,802,382 $81,961,909

1996 54,884,154 $1,381,544,888 $86,398,835

1997 55,278,825 $1,404,444,279 $103,647,547

1998 56,186,478 $1,482,337,489 $117,334,705

1999 58,472,906 $1,578,102,586 $147,349,374

2000 61,481,958 $1,632,408,551 $207,770,666

2001 63,888,848 $1,765,423,249 $218,663,983

2002 66,176,208 $1,988,748,212 $209,278,000

2003 68,942,374 $2,111,664,009 $211,070,000

2004 73,052,096 $2,225,327,215 $194,396,000

2005 75,670,894 $2,225,309,220 $210,430,000

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TABLE 5A

NUMBER OF UNITS SOLD – BY PACKAGE SIZE

FOR 2002 - 2005

LOOSE LEAF/CHEWING TOBACCO

Less than 1 oz. to less 2 oz. to less 5 oz. to less 10 oz. to less 15 oz.

than 2 oz. than 5 oz. than 10 oz. than 15 oz. 1 oz. or more

2002 0 699,115 203,476,178 5,426,568 0 2,800

2003 0 658,495 191,761,704 6,750,937 0 286,274

2004 0 542,335 180,401,587 7,586,542 0 2,002,084

2005 0 448,644 165,667,992 6,859,556 0 2,157,700

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TABLE 5B


FOR 2002 - 2005

PLUG/TWIST CHEWING TOBACCO

Less than 1

oz.

1 oz. to less

than 2 oz.

2 oz. to less

than 5 oz.

5 oz. to less

than 10 oz.

10 oz. to less

than 15 oz.

15 oz.

or more

2002 0 9,789,738 8,013,482 0 0 0

2003 3,960 9,057,230 7,417,331 0 0 1,184

2004 172,596 8,121,211 6,825,354 0 0 7,591

2005 229,638 7,388,766 6,041,214 0 0 7,848

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TABLE 5C


FOR 2002 - 2005

SCOTCH/DRY SNUFF

Less than 1

oz.

1 oz. to less

than 2 oz.

2 oz. to less

than 5 oz.

5 oz. to less

than 10 oz.

10 oz. to less

than 15 oz.

15 oz.

or more

2002 833,184 17,320,899 4,679,645 1,201,840 15,735 33,400

2003 800,640 16,092,214 4,388,662 1,097,114 15,936 34,994

2004 764,064 15,023,756 3,813,417 1,058,787 15,456 49,512

2005 734,976 13,637,790 3,303,851 1,042,565 14,064 47,134

27

TABLE 5D


FOR 2002 - 2005

MOIST SNUFF

Less than 1

oz.

1 oz. to less

than 2 oz.

2 oz. to less

than 5 oz.

5 oz. to less

than 10 oz.

10 oz. to less

than 15 oz.

15 oz.

or more

2002 24,561,076 859,285,595 0 0 0 0

2003 37,078,414 892,925,591 0 0 0 30,984

2004 41,769,081 935,536,000 0 0 0 58,830

2005 46,142,758 958,614,204 0 0 0 62,706

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APPENDIX A

2002-2005 Advertising and Promotional Expenditure Categories

Newspapers: Newspaper advertising; but excluding expenditures in connection with sampling, specialty item distribution, public entertainment, endorsements, sponsorships, coupons, and retail value added.

Magazines: Magazine advertising; but excluding expenditures in connection with sampling, specialty item distribution, public entertainment, endorsements, sponsorships, coupons, and retail value added.

Outdoor: Billboards; signs and placards in arenas, stadiums, and shopping malls, whether they are open air or enclosed; and any other advertisements placed outdoors, regardless of their size, including those on smokeless tobacco retailer property; but excluding expenditures in connection with sampling, specialty item distribution, public entertainment, endorsements, sponsorships, coupons, and retail value added.

Audio-visual: Audio-visual or video advertising on any medium of electronic communication not subject to the Federal Communications Commission’s jurisdiction, including screens at motion picture theaters, video cassettes, and monitors in stores; but excluding expenditures in connection with Internet advertising.

Transit: Advertising on or within private or public vehicles and all advertisements placed at, on, or within any bus stop, taxi stand, transportation waiting area, train station, airport, or any other transportation facility; but excluding expenditures in connection with sampling, specialty item distribution, public entertainment, endorsements, sponsorships, coupons, and retail value added.

Direct Mail: Direct mail advertising; but excluding expenditures in connection with sampling, specialty item distribution, public entertainment, endorsements, sponsorships, coupons, retail value added, and Internet advertising.

Point-of-Sale: Point-of-sale advertisements; but excluding expenditures in connection with outdoor advertising, sampling, specialty item distribution, public entertainment, endorsements, sponsorships, coupons, and retail value added.

Price discounts: Price discounts paid to smokeless tobacco retailers or wholesalers in order to reduce the price of smokeless tobacco to consumers, including off-invoice discounts, buy downs, voluntary price reductions, and trade programs; but excluding retail value added expenditures for promotions involving free smokeless tobacco and expenditures involving coupons.

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Promotional Allowances – Retail: Promotional allowances paid to smokeless tobacco retailers in order to facilitate the sale or placement of any smokeless tobacco product, including payments for stocking, shelving, displaying and merchandising brands, volume rebates, and incentive payments; but excluding expenditures in connection with newspapers, magazines, outdoor, audio-visual, transit, direct mail, point-of-sale, and price discounts.

Promotional Allowances – Wholesale: Promotional allowances paid to smokeless tobacco wholesalers in order to facilitate the sale or placement of any smokeless tobacco product, including payments for volume rebates, incentive payments, value added services, promotional execution and satisfaction of reporting requirements; but excluding expenditures in connection with newspapers, magazines, outdoor, audio-visual, transit, direct mail, point-of-sale, price discounts, and retail promotional allowances.

Promotional Allowances – Other: Promotional allowances paid to any persons other than retailers, wholesalers, and full-time company employees who are involved in the smokeless tobacco distribution and sales process in order to facilitate the sale or placement of any smokeless tobacco product; but excluding expenditures in connection with newspapers, magazines, outdoor, audio-visual, transit, direct mail, point-of-sale, price discounts, and retail and wholesale promotional allowances.

Sampling: Sampling of smokeless tobacco products, including the cost of the smokeless tobacco, all associated excise taxes, and the costs of organizing, promoting, and conducting sampling. Sampling includes the distribution of smokeless tobacco products for consumer testing or evaluation when consumers are able to use the smokeless tobacco outside of a facility owned or operated by the Company, but not the cost of actual clinical testing or market research associated with such smokeless tobacco distributions. Sampling also includes the distribution of coupons for free smokeless tobacco, when no purchase or payment is required to obtain the coupons or the smokeless tobacco product.

Specialty Item Distribution – Branded: All costs of distributing any item (other than smokeless tobacco products, items the sole function of which is to advertise or promote smokeless tobacco products, or written or electronic publications), whether distributed by sale, redemption of coupons, or otherwise, that bears the name, logo, or an image of any portion of the package of any brand or variety of smokeless tobacco product, including the cost of the items distributed but subtracting any payments received for the item. The costs associated with distributing non-smokeless tobacco items in connection with sampling or retail value added programs are reported in those categories, not as specialty item distribution.

Specialty Item Distribution – Non-Branded: All costs of distributing any item (other than smokeless tobacco products, items the sole function of which is to advertise or promote smokeless tobacco products, or written or electronic publications), whether distributed by sale, redemption of coupons, or otherwise, that does not bear the name, logo, or an image of any portion of the package of any brand or variety of smokeless tobacco product, including the cost of the items distributed but subtracting any payments received for the item. The costs associated with distributing non-smokeless tobacco items in connection with sampling or retail value added programs are reported in those categories, not as specialty item distribution.

30

Public Entertainment – Adult-Only: Public entertainment events bearing or otherwise displaying the name or logo or an image of any portion of the package of any of the Company’s smokeless tobacco products or otherwise referring or relating to smokeless tobacco, which take place in an adult-only facility, including all expenditures made by the Company in promoting and/or sponsoring such events.

Public Entertainment – General-Audience: Public entertainment events bearing or otherwise displaying the name or logo or an image of any portion of the package of any of the Company’s smokeless tobacco products or otherwise referring or relating to smokeless tobacco, which do not take place in an adult-only facility, including all expenditures made by the Company in promoting and/or sponsoring such events.

Endorsements & Testimonials: Endorsements and testimonials.

Sponsorships: Sponsorships of sports teams or individual athletes, but excluding endorsements.

Coupons: All costs associated with coupons for the reduction of the retail cost of smokeless tobacco products, whether redeemed at the point of sale or by mail, including all costs associated with advertising or promotion, design, printing, distribution, and redemption. However, when coupons are distributed for free smokeless tobacco and no purchase or payment is required to obtain the coupons or the smokeless tobacco, these activities are considered to be sampling and not couponing.

Retail Value Added – Bonus Smokeless Tobacco: Retail value added expenditures for promotions involving free smokeless tobacco products (e.g., buy two, get one free), whether or not the free smokeless tobacco products are physically bundled together with the purchased smokeless tobacco products, including all expenditures and costs associated with the value added to the purchase of smokeless tobacco products (e.g., excise taxes paid for the free smokeless tobacco product).

Retail Value Added – Non-Smokeless Tobacco Bonus: Retail value added expenditures for promotions involving free non-smokeless tobacco items (e.g., buy two packs, get free key chain), including all expenditures and costs associated with the value added to the purchase of smokeless tobacco products.

Company Website: All expenditures associated with advertising on any company Internet website that can be accessed by computers located in the United States.

Internet – Other: Internet advertising other than on the Company’s own Internet website, including on the World Wide Web, on commercial on-line services, and through electronic mail messages.

Telephone: Telephone advertising, including costs associated with the placement of telemarketing calls or the operation of incoming telephone lines that allow consumers to participate in any promotion or

31

hear pre-recorded product messages; but excluding costs associated with having customer service representatives available for responding to consumer complaints or questions.

All Other: Advertising and promotional expenditures not covered by another category.

Sports and Sporting Events: All costs associated with sponsoring, advertising, or promotion of sports or sporting events, including football, weight lifting, sailing, rodeo, automobile, race car, funny car, motorcycle, bicycle, truck, monster truck, tractor-pull, fishing, and hunting events, competitions, tournaments, and races. This category is duplicative of expenditures for other categories.

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